Massachusetts taxi companies struggle to compete with Uber and Lyft

THE ISSUE: Government regulations and their own business models present challenges to taxi companies trying to compete with ride-share services.

THE IMPACT: As their market share continues to erode, some cab companies are shutting down.

Gerry Tuoti Wicked Local Newsbank Editor

As they struggle to compete with ride-share companies such as Uber and Lyft, many traditional taxi companies face challenges posed by their business models and outdated government regulations, transportation analysts say.

“Because of the business being the way it is, ridership is down 40 percent from 2012,” said Donna Blythe-Shaw, a taxi industry advocate and retired representative of the Boston Taxi Drivers Association. “Before, the taxi industry survived on street hails and taxi pull at the airport and major hotels. They lost major business as a result of Uber and Lyft.”

Newton’s Yellow Cab recently became the latest taxi company to close it doors for good.

“This is the end of the line for a local institution,” longtime Yellow Cab owner Richard Johnston told the Newton Tab before the company gave its last ride Aug. 30. “The whole company is honestly a dinosaur.”

Unlike Uber and Lyft, which contract drivers who drive their own cars and are responsible for their vehicles’ maintenance and upkeep, Yellow Cab owned its vehicle fleet and garage. Its drivers were full-time employees.

“It’s the labor costs, overhead, the garage, the office. That’s a lot of expenses,” Blythe-Shaw said. “Newton had a lot of costs, and now had competition. The taxi industry for many years was a monopoly.”

In the traditional taxi industry, cities and towns are allotted a fixed number of medallions, or taxi permits. Medallion owners can then sell, lease or transfer them.

In the suburbs and smaller cities, taxi companies typically own a garage and vehicle fleet and employ their drivers. In Boston, single companies might own hundreds of medallions, then lease them out to drivers who pay to drive a cab for a shift. Currently, a cabbie will pay $88 to drive a taxi for a 12-hour shift, Blythe-Shaw said.

“There’s a population of workers who have to pay to work,” she said. “They become hustlers because they have to make $70 or $100 in the first few hours to pay for the shift. It’s a very unhealthy and exploitative system.”

The smaller companies that employ drivers and own facilities and vehicles are the ones typically hit hardest by the entry of Uber and Lyft into the market, analysts say.

Government regulations also put traditional taxi companies at a disadvantage against Uber and Lyft, said Matt Blackbourn, a researcher with the Boston-based Pioneer Institute. While a cab can drop off a passenger in any community, it can only pick up new passengers in the city or town it’s licensed in. That means a cab, for example, could bring someone from Newton to Boston, but would have to drive back to Newton before picking up any new customers.

Under current regulations, municipal governments set minimum rates, rather than letting cab companies set their own market rates.

“All these regulations are reflective of a different time, and you could do a lot to make it more competitive there,” Blackbourn said. “It’s a sensitive subject, and those restrictions were put in place for a reason, and part of that is market protection.”

Loosening some of those restrictions, though, would make the system more equitable, Blackbourn said. He suggested replacing the municipal restrictions with regional metropolitan zones.

Giant ride-share companies, which operate in hundreds of cities and have enormous financial backing, might not even be the biggest challenge facing the taxi industry, Blackbourn said. He expects autonomous self-driving vehicles to enter the market in the coming decade.

In the meantime, he said government has a role to play. While it wouldn’t be prudent public policy to prop up a failing industry against overwhelming market forces, it would make sense to move toward a more level regulatory playing field, Blackbourn said.

“We want to celebrate innovation … but, at the same time, it is imperative that lawmakers have to revise these regulations to reflect the realities of the 21st century,” he said.